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Payroll Protection Program: Loan Forgiveness

By: Financial Hotline
Summer 2020 (Vol. 38, No. 2)

Q: I received a PPP loan and want to be sure I qualify for forgiveness. Is there a simple check list I can work with?

A: You can find detailed instructions at In general, the Paycheck Protection Program (PPP) loan forgiveness focuses on three main themes:

1. Spending your PPP funds on the right things. The guidelines require you to spend at least 60% of the loan proceeds on payroll costs which can include:

  • Salaries or wages

  • Vacation pay

  • Parental and family leave

  • Employer medical or other group benefits

  • Sick leave

  • Employer retirement benefits

  • Bonuses

  • Commissions or benefit pay

You can spend the remaining 40% of the funds on approved expenses such as:

  • Mortgage interest

  • Payments for lease contracts

  • Utilities

Note: To be forgivable, these expenses can’t be brand new, the contracts or accounts need to have been in effect prior to February 15, 2020.

2. Tracking your expenses. Here are some tips to help you prove your expenses and qualify for loan forgiveness:

  • Record the PPP funds as a loan in your books

  • For the next 24 weeks, record each expense amount along with the date incurred

  • Record the vendor or payee

  • Record the purpose and the category of the expense such as payroll, utilities or rent

  • Keep and store the actual receipt or record

3. Apply. Forgiveness is not automatic. At the end of the 24-week window, you will need to add up the total amount you spent on qualifying expenses and apply for forgiveness through your lender using the applicable Forgiveness Application Form.

Q: Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete?

A: According to the Small Business Association guidelines, sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.

Q: If a borrower submits a timely loan forgiveness application, does the borrower have to make any payments on its loan prior to SBA remitting the forgiveness amount, if any?

A: As long as a borrower submits its loan forgiveness application within ten months of the completion of the Covered Period (as defined below), the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven.

Q: Are nonpayroll costs incurred during the Covered Period, but paid after the Covered Period, eligible for loan forgiveness?

A: Nonpayroll costs are eligible for loan forgiveness if they were incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Example: A borrower’s 24-week Covered Period runs from April 20 through October 4. On October 6, the borrower receives its electricity bill for September. The borrower pays its September electricity bill on October 16. These electricity costs are eligible for loan forgiveness because they were incurred during the Covered Period and paid on or before the next regular billing date (November 6).